UPDATE 1-All Kashagan pipelines to be replaced -Kazakh minister

Thu May 15, 2014 7:02am EDT

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By Olesya Astakhova

MOSCOW May 15 (Reuters) - The consortium developing the giant Kashagan oilfield will have to replace the entire pipeline system at the deposit, Kazakhstan's oil minister said on Thursday, confirming that output there would not resume this year.

Asked by Reuters if the consortium developing the Caspian Sea oilfield was planning to replace all its pipelines, Oil & Gas Minister Uzakbai Karabalin replied: "Yes, we do plan to do so."

Referring to delayed output at Kashagan, he said Kazakhstan had been forced to lower its 2014 oil output forecast to 81.7 million tonnes from 83 million.

Production at Kashagan, the world's biggest oil find in 35 years, started last September but was halted in early October after the discovery of gas leaks in the $50 billion project's pipeline network.

The North Caspian Operating Company (NCOC) developing Kashagan said last month that it did not expect to produce oil this year due to the leaks.

NCOC includes Eni, Exxon Mobil, Royal Dutch Shell, Total, China's CNPC, Japan's Inpex and Kazakh state-run company KazMunaiGas .

Citing the results of an investigation, NCOC also did not rule out that oil and gas pipelines might have to fully replaced, a possibility raised by Reuters in April.

Kazakhstan is the second-largest post-Soviet oil producer after Russia. The government had originally hoped that Kashagan would produce 8 million tonnes of crude in 2014.

The field's oil is 4,200 metres (4,590 yards) below the seabed at very high pressure, and associated gas reaching the surface is mixed with some of the highest concentrations of toxic, metal-eating hydrogen sulphide (H2S) ever encountered.

NCOC has identified stress cracking due to sulphur-laden gases as "the root cause of the pipeline issues" at Kashagan.

Much of Kashagan is built on artificial islands to avoid damage from pack ice in the Caspian, which freezes for five months a year in temperatures that drop below minus 30 Celsius (-22F). (Reporting by Olesya Astakhova; Writing by Dmitry Solovyov; editing by Jason Neely)

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